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Thursday, February 17, 2011

Sensio 3D Update: Where Will The Revenue Come From?

Sensio is a leader in the 3D industry. They own leading-edge 3D technology and the expertise to bring the 3D experience to industries, cinemas, televisions, etc.

The new 3D revolution is still in its infancy. Up until very recently 3D content has been sparse, and the cost of 3D TVs were prohibitively expensive. However with more and more content becoming available (new 3D channels being launched, major 3D video games being released, etc) and prices starting to come down, 2011 could be the year where 3D truly hits its stride.

Is Sensio positioned to profit from this trend?

Sensio has been extremely busy over the past year positioning itself to take advantage of the forecasted growth in the 3D sector in 2011. I think 2011/2012 will be the period where Sensio transforms from a start-up/concept company to a revenue growth company.

So going forward where will Sensio's revenue streams come from? I see the following 3 areas as being key revenue drivers starting in 2011:

Consumer Electronics (as a component supplier to 3D TVs and other devices)

Live 3D Sporting Broadcasts

3D Television Broadcasting

Consumer Electronics

Vizio

On January 5, 2010, Sensio was selected by Vizio to incorporate Sensio's decoder, the S3D Core, into its full line of HD3D TVs.

Sensio makes money on every Vizio 3DTV sold

Vizio 3DTVs just started hitting the market in Q4 2010. As sales of 3DTVs grow in 2011 we should start to see revenues from this segment grow substantially.

These manufacturers supply many of the biggest names in the industry, including Cisco, Toshiba, Sanyo and Samsung.

Given the range of suppliers involved, these deals have the potential to supply a high percentage of all 3D units sold in the future, without the need of contracting directly with the television manufacturers themselves.

This is another revenue stream that will just start hitting the top line in 2011.

Other Patents

Most notably Autodetect and S2D Switch which were announced on Jan 3, 2011.

Autodetect allows the TV to automatically detect the type of 3D signal being broadcast (side-by-side, top/bottom, etc, etc) without the need for the viewer to manually determine the signal and then manually switch the TV via on-screen menus.

S2D switch allows 3D content to be converted and played in 2D.

Major TV manufacturers showed great interest in products when introduced last month during CES 2011.

Existing 3DTVs on the market lack these critical features.

Expect to see at least one deal signed in first 1/2 of year .

Potential for virtually ALL manufacturers to sign on to license these patents.

Live 3D Sports Broadcasts

Sensio's revenues, while modest, jumped by 89.6% in the last 6-months of the year vs. the prior year. This jump in revenues was primarily driven by licensing revenues related to broadcasting 8 FIFA games worldwide in 3D in 2010.

Just this week the NBA announced that they have selected Sensio to broadcast the 2011 All-Star Game, as well as several regular season and playoff NBA games globally in 3D cinemas. For more on this, see my previous post Sensio: NBA 3D Deal Shows Promise from Feb 15, 2011.

To date these have been one-off events, but if successful this could easy snowball into regular recurring income streams with FIFA and the NBA, as well as others leagues such the NHL, MLB, NHL.

Side Note:

For FIFA 2010, Aruna partnered with Sensio to broadcast the event in 3D (originally announced during NAB 2010 on Apr 13, 2010). Suddenly on May 10, 2010 FIFA terminated its relationship with Aruna. FIFA said it would now handle the 3D rights directly, and worked directly with Sensio to broadcast the games as originally scheduled.

I can only think that this gives Sensio a lot of weight going forward.

Also of interest is that this week's NBA announcement is also directly between the NBA and Sensio (apparently cutting out Cinedigm who had been involved in previous years). I have to think that cutting out the middleman and working directly with the rights holders not only increases Sensio's potential margins, but gives them much more control and more security going forward.

Television Broadcasting and 3D Content

Videotron

On Nov 17, 2010, announced partnership with Videotron (largest cable broadcaster in Quebec) to launch a 3D content offering in Dec, 2010.

3D content being delivered both in Sensio 3D for 3D-TVs, as well as Sensio SAFE Anaglyphic format for standard HD TVs (red and blue glasses). Note that Sensio's anaglyphics algorithm reportedly results in a better and more comfortable 3D viewing experience than traditional anaglyphic 3D

This is another stable revenue stream that will just begin to hit the top line in 2011.

I don't expect a lot of revenue from this initially, but this content is a perfect complement to their television broadcasting offering and should grow over time.

Other Potential Areas To Watch

On Dec 1, 2010 Sensio acquired Algolith's video-processing (video format conversion and noise reduction) portfolio - consisting mainly of 4 patents and 9 patents pending - to extend its range of 3D delivery solutions. Expect to see new product offerings incorporating these technologies in the very near future.

Sensio will be attending NAB 2011 in April.

Their press release states they "will be presenting a newly expanded offering that specifically addresses the broadcast industry’s concerns about image quality and compatibility in 3D, right down the line."

It was at last year's NAB 2010 where Sensio announced they would be broadcasting FIFA 2010. They may use this venue to announce other live events for 2011.

3D Console Video Gaming

Ubisoft has been integrating Sensio 3D format into their 3D enabled video games for consoles like the PS3.

Look for other game developers to possibly start integrating Sensio 3D directly into their games as this industry is set to grow exponentially in 2011.

Share Price

It is my view that the current share price does not reflect the potential growth and revenue streams highlighted above. Once these revenue streams start to kick in, and as new deals are signed, the share price should rise significantly. In the meantime, at a market cap of only $60 million, SIO.V provides a cheap play on a growing sector.

5 comments:

Good overview of the potential at Sensio. The questions remaining have to do with their terms with these manufacturers and component suppliers really are, how durable a 3D sports broadcasting francise is and what the business model will ultimately look like.

So far management not responding to inquiries around potential stock coverage isn't exactly a good thing for current shareholders!

I'll try again to contact them and maybe put someone on their case to try and break through.

Also, one of the Stockhouse.com users posted a great update on SIO shortly after I wrote this up. The link is: http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=29292939&l=0&r=0&s=SIO&t=LIST

How can you explain this downfall(close at $0.53 on tuesday may 25th?). If sensio is a leader in the 3D industry with an advanced technology how can you explain this performance when at the same time RealD doubled his value on NYSE. Can you admit that you have it all wrong or maybe you were only there to pump it up?

@Anonymous It's an illiquid stock. A large % of stock is owned by institutions, and when they rebalance their portfolios it can have a negative impact on price. The illiquidity works both ways however. Just watch what happens if/when SENSIO announces a major deal with Samsung or Panasonic.

By the way, take a look at RealD's share price over the past week. RealD does not have a sustaining business model to drive earnings in the long run - SENSIO does. Just give it a little time.